This paper proposes a design procedure for a high power D-STATCOM which uses the isolated, dual-converter topology. Converter parallelization is achieved by coupled inductors built on single magnetic cores. In the proposed configuration, DC links of the two converters are separated. The effect of this separation on the in desirable circulating current is investigated. Control of grid currents is carried out using the optimal Linear Quadratic control, to improve both the transient response and the steady-state error. A design of a discrete observer is performed to estimate all state variables through the coupling LCL filter. The isolated de links are connected to two rectifiers in order to stabilize the dc side voltages. System behaviour and stability during voltage dips were analysed. The D-STATCOM can deliver the required reactive power during normal operating conditions. During balanced or unbalanced faults, DC bus voltages remain stable and the delivered currents are equally shared between the two isolated VSC. The feasibility of the proposed design was verified through experimentation.